Shipping in rough seas till 2016: Maersk boss


The global economy might be on the mend but the boss of shipping giant Maersk expects the sector's tough times to continue for the next three years. "That's just the situation we'll have to learn to live with," said Mr Nils Andersen, chief executive of AP Moller-Maersk.

The Danish conglomerate controls Maersk Line, the world's largest operator of container ships, with 15 per cent of global traffic.

"We, at the moment, are rather successful in making a profit but of course it is a difficult environment to operate in if you are a smaller player," he added.

Maersk Line last November said third-quarter net profit rose 11 per cent to US$554 million (S$702 million), as cost cuts offset the drop in freight rates. Parent company AP Moller-Maersk lifted its full-year forecast as third- quarter net profit rose 28 per cent to US$1.2 billion.

The industry's problem lies squarely with the over-supply of shipping capacity, which in turn depresses freight rates. And with new ships being added to fleets, the problem looks set to stay for the time being.

"For the next few years we will have over-capacity. We know the order books for the next three years and the orders are pretty large," said Mr Andersen.

"So we believe there will be over-capacity at least till the end of 2016 - maybe longer, depending on how fast people retire the older ships."

Demand will grow alongside the global economy but will probably not be able to fully absorb all the new capacity.

"We think the general economy will pick up a bit in 2014, the growth rate will be better," said Mr Andersen.

"But it doesn't mean we will return to the good times with high growth rates for container shipping, so we maintain our forecast which is a growth of 4 to 6 per cent for global container shipping volumes for 2014."

Mr Andersen was in town recently for the christening of the Mary Maersk, the third in Maersk Line's class of new mega-vessels to call at Singapore's port.

These Triple-E ships, the largest in the world, are designed for energy efficiency, economies of scale and environmental friendliness. Each of these vessels can carry 18,000 containers - enough to transport 182 million iPads or 111 million pairs of shoes in a single voyage.

Mr Andersen said his company is careful not to put more capacity into the Asia-Europe trade route than it needs. "So when we put in new Triple-E vessels, we take out other, older vessels with higher fuel consumption, higher costs.

"The exercise is not to add more capacity but to reduce cost and become more environmentally friendly."

Singapore acts as the Asia-Pacific headquarters for several businesses under AP Moller-Maersk, whose other operations include oil drilling and running ports.

The conglomerate employs 700 people here and between 120 and 130 of its vessels and rigs are under the Singapore flag.

The group has a 30 per cent stake in Malaysia's Port of Tanjung Pelepas, which is Maersk Line's Asian transshipment hub.

"We have a growing business with Tanjung Pelepas, it is our main transshipment terminal in Asia and it works very well," said Mr Andersen.

"We also see opportunities for doing more business in Singapore.

"Singapore itself is not a growth market, but we are doing more and more activities in the Far East, in South-east Asia, and that will mean that our headquarters in Singapore will also grow."

Its oil drilling arm has ordered rigs from Singapore's Keppel Corp. That business in turn drills for companies like Shell and Malaysia's state oil firm Petronas.

Mr Andersen noted that many drilling companies are ordering rigs as well. "There's a lot of capacity coming in. There is a risk depending on what the oil price will be going forward."

He also pointed out that a lot of gas has been discovered.

"Maybe there's a risk that the oil price will be less strong than everybody had expected."

But he said his company has the advantage of having many businesses. "So if the drilling business gets difficult, then we have the ports or shipping business. So we have the possibility of reducing the risk."

Source from : The Straits Times